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THE CHATTER BOX

 
  
  
  The Chatter Box : Blathering On
  
  
  
 
Messages 1 2 

Inequality in America by tucsonmike on 27 June 2006 3:17am
 
This was the cover story of last weeks Economist. The hardest hit are the "middle class" which are a broad spectrum. The poorest are affected mainly by illegal immigration. You can't export a waitresses job to Bangalore.

I suspect you are only going to see the top of the class go to college. Otherwise, you may be getting a college education to work in the same jobs high school grads do. College is no longer the automatice salary boost.

Most Americans still believe in the American Dream. This is what finally answered my question about why Americans are not angrier.
 
Re: Inequality in America by sighthound on 27 June 2006 4:36am
 
Do you have a link to that article, Mike? I can't fathom why Americans are not angrier - I certainly am!
 
Re: Inequality in America by pandab on 28 June 2006 3:31am
 
Do NOT get me started on outsourcing and/or off-shoring. Trust me. My rant on that topic could fill volumes. :)

Why aren't Americans angrier? What can I say? Americans are eternally optimistic. It's one of our most endearing--and perversely, one of our most annoying--traits. "Life will get better," we believe as a society. "We just need to try harder." The flipside to that is another one I hear a lot, "If I'm not doing better, it must be someone else's fault."

But I wax cynical.

Pandab
 
Re: Inequality in America by peripatetically on 28 June 2006 5:10am
 
Me too. Everybody I know is livid!
 
Re: Inequality in America by tucsonmike on 29 June 2006 2:03am
 
Econonmist is normally cheap about links. Maybe I can find one for this article. I subscribes only because it was free for a year. (Normally $115).

Everyone I know is angry. No one can put a finger on what is really bothering them either. Pandab, you are right. The second book John Cleese wrote with Robin Skynner, Life and How to Survive covers some of this. Americans are eternally optomistic. We do blame others for problems. The Soviets, Japanese, Arabs etc.

You can rant, Pandab. Be my guest!:-)

I was speaking with my sister about this. She wonders what it will be like for her kids. I now suspect if I were getting out of high school now, I would have made some very different choices.

I think you are going to see fewer going to college. Unless you are the very top of your class and can maintain that in college, your increase in salary will not make the investment worth it. Of course, anyone should try to learn what they can. I doubt any of us would be on this very site otherwise.

It will take the majority of the country not seeing the American Dream work any longer for change to happen. I can only wonder what kind of change. We aren't there at this point in history.

Read this weeks article in Time about Teddy Roosevelt. Some of what is to be done are there.

I've always considered putting together some sort of political movement to improve us, but it has always been vague.

 
Re: Inequality in America by tucsonmike on 29 June 2006 9:12pm
 
Well, we had the court decision to allow Congress to change district lines whenever they want. It was the case from Texas where the lines were drawn to keep Tom DeLay in Congress.

I had to subscribe to the online Economist, but here is the article in full (Didn't have to pay, cause I already get the print version).
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Leaders

The United States
Inequality and the American Dream

Jun 15th 2006
From The Economist print edition
The world's most impressive economic machine needs a little adjusting

MORE than any other country, America defines itself by a collective dream: the dream of economic opportunity and upward mobility. Its proudest boast is that it offers a chance of the good life to everybody who is willing to work hard and play by the rules. This ideal has made the United States the world's strongest magnet for immigrants; it has also reconciled ordinary Americans to the rough side of a dynamic economy, with all its inequalities and insecurities. Who cares if the boss earns 300 times more than the average working stiff, if the stiff knows he can become the boss?

Look around the world and the supremacy of “the American model” might seem assured. No other rich country has so successfully harnessed the modern juggernauts of technology and globalisation. The hallmarks of American capitalism—a willingness to take risks, a light regulatory touch and sharp competition—have spawned enormous wealth. “This economy is powerful, productive and prosperous,” George Bush boasted recently, and by many yardsticks he is right. Growth is fast, unemployment is low and profits are fat. It is hardly surprising that so many other governments are trying to “Americanise” their economies—whether through the European Union's Lisbon Agenda or Japan's Koizumi reforms.

Yet many people feel unhappy about the American model—not least in the United States. Only one in four Americans believes the economy is in good shape. While firms' profits have soared, wages for the typical worker have barely budged. The middle class—admittedly a vague term in America—feels squeezed. A college degree is no longer a passport to ever-higher pay. Now politicians are playing on these fears. From the left, populists complain about Mr Bush's plutocratic friends exporting jobs abroad; from the right, nativists howl about immigrants wrecking the system.
A global argument

The debate about the American model echoes far beyond the nation's shores. Europeans have long held that America does not look after its poor—a prejudice reinforced by the ghastly scenes after Hurricane Katrina. The sharp decline in America's image abroad has much to do with foreign policy, but Americanisation has also become synonymous with globalisation. Across the rich world, global competition is forcing economies to become more flexible, often increasing inequality; Japan is one example (see article). The logic of many non-Americans is that if globalisation makes their economy more like America's, and the American model is defective, then free trade and open markets must be bad.

This debate mixes up three arguments—about inequality, meritocracy and immigration. The word that America should worry about most is the one you hear least—meritocracy.

Begin with inequality. The flip-side of America's economic dynamism is that it has become more unequal—but in a more complex way than first appears (see article). America's rich have been pulling away from the rest of the population, as the returns for talent and capital in a global market have increased. Even if American business stopped at the water's edge, Bill Gates and the partners of Goldman Sachs would still be wealthy people; but since software and investment banking are global industries, Mr Gates is worth $50 billion and the average pay-and-benefits package for Goldman's 22,400 employees is above $500,000.

On the other hand, the current wave of globalisation may not be widening the gap between the poor and the rest. Indeed, the headwinds of the global economy are being felt less by Americans at the bottom than by those in the middle. The jobs threatened by outsourcing—data-processing, accounting and so on—are white-collar jobs; the jobs done by the poor—cleaning and table-waiting, for example—could never be done from Bangalore.

Those at the bottom have different fears, immigration high among them. Their jobs cannot be exported to rival countries perhaps, but rival workers can and are being imported to America. Yet there is surprisingly little evidence that the arrival of low-skilled workers has pulled poor Americans' wages down. And it has certainly provided a far better life for new arrivals than the one they left behind (see article).
A long ladder is fine, but it must have rungs

To many who would discredit American capitalism, this sort of cold-hearted number-crunching is beside the point. Any system in which the spoils are distributed so unevenly is morally wrong, they say. This newspaper disagrees. Inequality is not inherently wrong—as long as three conditions are met: first, society as a whole is getting richer; second, there is a safety net for the very poor; and third, everybody, regardless of class, race, creed or sex, has an opportunity to climb up through the system. A dynamic, fast-growing economy may sometimes look ugly, but it offers far more hope than a stagnant one for everybody in the United States.

This is not to let the American system off the hook when it comes to social mobility. Although the United States is seen as a world of opportunity, the reality may be different. Some studies have shown that it is easier for poorer children to rise through society in many European countries than in America. There is a particular fear about the engine of American meritocracy, its education system. Only 3% of students at top colleges come from the poorest quarter of the population. Poor children are trapped in dismal schools, while richer parents spend ever more cash on tutoring their offspring.

What, if anything, needs to be done? A meritocracy works only if it is seen to be fair. There are some unfair ways in which rich Americans have rewarded themselves, from backdated share options to reserved places at universities for the offspring of alumni. And a few of Mr Bush's fiscal choices are not helping. Why make the tax system less progressive at a time when the most affluent are doing best?

That said, government should not be looking for ways to haul the rich down. Rather, it should help others, especially the extremely poor, to climb up—and that must mean education. Parts of the American system are still magnificent, such as its community colleges. But as countless international league tables show, its schools are not. Education is a political football, tossed about between Republicans who refuse to reform a locally based funding system that starves schools in poor districts, and Democrats who will never dare offend their paymasters in the teachers' unions.

The other challenge is to create a social-welfare system that matches a global business world of fast-changing careers. No country has done this well. But the answer has to be broader than just “trade-adjustment” assistance or tax breaks for hard-hit areas. Health care, for instance, needs reform. America's traditional way of providing it through companies is crumbling. The public pension system, too, needs an overhaul.

These are mightily complicated areas, but the United States has always had a genius for translating the highfalutin' talk of the American Dream into practical policies, such as the GI Bill, a scholarship scheme for returning troops after the second world war. The country needs another burst of practical idealism. It is still the model the rest of the world is following.

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Special Report

Inequality in America
The rich, the poor and the growing gap between them

Jun 15th 2006 | WASHINGTON, DC
From The Economist print edition
The rich are the big gainers in America's new prosperity

Getty Images

AMERICANS do not go in for envy. The gap between rich and poor is bigger than in any other advanced country, but most people are unconcerned. Whereas Europeans fret about the way the economic pie is divided, Americans want to join the rich, not soak them. Eight out of ten, more than anywhere else, believe that though you may start poor, if you work hard, you can make pots of money. It is a central part of the American Dream.

The political consensus, therefore, has sought to pursue economic growth rather than the redistribution of income, in keeping with John Kennedy's adage that “a rising tide lifts all boats.” The tide has been rising fast recently. Thanks to a jump in productivity growth after 1995, America's economy has outpaced other rich countries' for a decade. Its workers now produce over 30% more each hour they work than ten years ago. In the late 1990s everybody shared in this boom. Though incomes were rising fastest at the top, all workers' wages far outpaced inflation.

But after 2000 something changed. The pace of productivity growth has been rising again, but now it seems to be lifting fewer boats. After you adjust for inflation, the wages of the typical American worker—the one at the very middle of the income distribution—have risen less than 1% since 2000. In the previous five years, they rose over 6%. If you take into account the value of employee benefits, such as health care, the contrast is a little less stark. But, whatever the measure, it seems clear that only the most skilled workers have seen their pay packets swell much in the current economic expansion. The fruits of productivity gains have been skewed towards the highest earners, and towards companies, whose profits have reached record levels as a share of GDP.

Even in a country that tolerates inequality, political consequences follow when the rising tide raises too few boats. The impact of stagnant wages has been dulled by rising house prices, but still most Americans are unhappy about the economy. According to the latest Gallup survey, fewer than four out of ten think it is in “excellent” or “good” shape, compared with almost seven out of ten when George Bush took office.

The White House professes to be untroubled. Average after-tax income per person, Mr Bush often points out, has risen by more than 8% on his watch, once inflation is taken into account. He is right, but his claim is misleading, since the median worker—the one in the middle of the income range—has done less well than the average, whose gains are pulled up by the big increases of those at the top.

Privately, some policymakers admit that the recent trends have them worried, and not just because of the congressional elections in November. The statistics suggest that the economic boom may fade. Americans still head to the shops with gusto, but it is falling savings rates and rising debts (made possible by high house prices), not real income growth, that keep their wallets open. A bust of some kind could lead to widespread political disaffection. Eventually, the country's social fabric could stretch. “If things carry on like this for long enough,” muses one insider, “we are going to end up like Brazil”—a country notorious for the concentration of its income and wealth.

America is nowhere near Brazil yet (see chart 1). Despite a quarter century during which incomes have drifted ever farther apart, the distribution of wealth has remained remarkably stable. The richest Americans now earn as big a share of overall income as they did a century ago (see chart 2), but their share of overall wealth is much lower. Indeed, it has barely budged in the few past decades.

The elites in the early years of the 20th century were living off the income generated by their accumulated fortunes. Today's rich, by and large, are earning their money. In 1916 the richest 1% got only a fifth of their income from paid work, whereas the figure in 2004 was over 60%.
The not-so-idle rich

The rise of the working rich reinforces America's self-image as the land of opportunity. But, by some measures, that image is an illusion. Several new studies* show parental income to be a better predictor of whether someone will be rich or poor in America than in Canada or much of Europe. In America about half of the income disparities in one generation are reflected in the next. In Canada and the Nordic countries that proportion is about a fifth.

It is not clear whether this sclerosis is increasing: the evidence is mixed. Many studies suggest that mobility between generations has stayed roughly the same in recent decades, and some suggest it is decreasing. Even so, ordinary Americans seem to believe that theirs is still a land of opportunity. The proportion who think you can start poor and end up rich has risen 20 percentage points since 1980.

That helps explain why voters who grumble about the economy have nonetheless failed to respond to class politics. John Edwards, the Democrats' vice-presidential candidate in 2004, made little headway with his tale of “Two Americas”, one for the rich and one for the rest. Over 70% of Americans support the abolition of the estate tax (inheritance tax), even though only one household in 100 pays it.

Americans tend to blame their woes not on rich compatriots but on poor foreigners. More than six out of ten are sceptical of free trade. A new poll in Foreign Affairs suggests that almost nine out of ten worry about their jobs going offshore. Congressmen reflect their concerns. Though the economy grows, many have become vociferous protectionists.

Other rich countries are watching America's experience closely. For many Europeans, America's brand of capitalism is already far too unequal. Such sceptics will be sure to make much of any sign that the broad middle-class reaps scant benefit from the current productivity boom, setting back the course of European reform even further.

The conventional tale is that the changes of the past few years are simply more steps along paths that began to diverge for rich and poor in the Reagan era. During the 1950s and 1960s, the halcyon days for America's middle class, productivity boomed and its benefits were broadly shared. The gap between the lowest and highest earners narrowed. After the 1973 oil shocks, productivity growth suddenly slowed. A few years later, at the start of the 1980s, the gap between rich and poor began to widen.

The exact size of that gap depends on how you measure it. Look at wages, the main source of income for most people, and you understate the importance of health care and other benefits. Look at household income and you need to take into account that the typical household has fallen in size in recent decades, thanks to the growth in single-parent families. Look at statistics on spending and you find that the gaps between top and bottom have widened less than for income. But every measure shows that, over the past quarter century, those at the top have done better than those in the middle, who in turn have outpaced those at the bottom. The gains of productivity growth have become increasingly skewed.

If all Americans were set on a ladder with ten rungs, the gap between the wages of those on the ninth rung and those on the first has risen by a third since 1980. Put another way, the typical worker earns only 10% more in real terms than his counterpart 25 years ago, even though overall productivity has risen much faster. Economists have long debated why America's income disparities suddenly widened after 1980. The consensus is that the main cause was technology, which increased the demand for skilled workers relative to their supply, with freer trade reinforcing the effect. Some evidence suggests that institutional changes, particularly the weakening of unions, made the going harder for people at the bottom.

Whether these shifts were good or bad depends on your political persuasion. Those on the left lament the gaps, often forgetting that the greater income disparities have created bigger incentives to get an education, which has led to a better trained, more productive workforce. The share of American workers with a college degree, 20% in 1980, is over 30% today.
The excluded middle

In their haste to applaud or lament this tale, both sides of the debate tend to overlook some nuances. First, America's rising inequality has not, in fact, been continuous. The gap between the bottom and the middle—whether in terms of skills, age, job experience or income—did widen sharply in the 1980s. High-school dropouts earned 12% less in an average week in 1990 than in 1980; those with only a high-school education earned 6% less. But during the 1990s, particularly towards the end of the decade, that gap stabilised and, by some measures, even narrowed. Real wages rose faster for the bottom quarter of workers than for those in the middle.

After 2000 most people lost ground, but, by many measures, those in the middle of the skills and education ladder have been hit relatively harder than those at the bottom. People who had some college experience, but no degree, fared worse than high-school dropouts. Some statistics suggest that the annual income of Americans with a college degree has fallen relative to that of high-school graduates for the first time in decades. So, whereas the 1980s were hardest on the lowest skilled, the 1990s and this decade have squeezed people in the middle.
Getty Images First, pick your parents

The one truly continuous trend over the past 25 years has been towards greater concentration of income at the very top. The scale of this shift is not visible from most popular measures of income or wages, as they do not break the distribution down finely enough. But several recent studies have dissected tax records to investigate what goes on at the very top.

The figures are startling. According to Emmanuel Saez of the University of California, Berkeley, and Thomas Piketty of the Ecole Normale Supérieure in Paris, the share of aggregate income going to the highest-earning 1% of Americans has doubled from 8% in 1980 to over 16% in 2004. That going to the top tenth of 1% has tripled from 2% in 1980 to 7% today. And that going to the top one-hundredth of 1%—the 14,000 taxpayers at the very top of the income ladder—has quadrupled from 0.65% in 1980 to 2.87% in 2004.

Put these pieces together and you do not have a picture of ever-widening inequality but of what Lawrence Katz of Harvard University, David Autor of the Massachusetts Institute of Technology and Melissa Kearney of the Brookings Institution call a polarisation of the labour market. The bottom is no longer falling behind, the top is soaring ahead and the middle is under pressure.
Superstars and super-squeezed

Can changes in technology explain this revised picture? Up to a point. Computers and the internet have reduced the demand for routine jobs that demand only moderate skills, such as the work of bank clerks, while increasing the productivity of the highest-skilled. Studies in Britain and Germany as well as America show that the pace of job growth since the early 1990s has been slower in occupations that are easy to computerise.

For the most talented and skilled, technology has increased the potential market and thus their productivity. Top entertainers or sportsmen, for instance, now perform for a global audience. Some economists believe that technology also explains the soaring pay of chief executives. One argument is that information technology has made top managers more mobile, since it no longer takes years to master the intricacies of any one industry. As a result, the market for chief executives is bigger and their pay is bid up. Global firms plainly do compete globally for talent: Alcoa's boss is a Brazilian, Sony's chief executive is American (and Welsh).

But the scale of America's income concentration at the top, and the fact that no other country has seen such extreme shifts, has sent people searching for other causes. The typical American chief executive now earns 300 times the average wage, up tenfold from the 1970s. Continental Europe's bosses have seen nothing similar. This discrepancy has fostered the “fat cat” theory of inequality: greedy businessmen sanction huge salaries for each other at the expense of shareholders.

Whichever explanation you choose for the signs of growing inequality, none of the changes seems transitory. The middle rungs of America's labour market are likely to become ever more squeezed. And that squeeze feels worse thanks to another change that has hit the middle class most: greater fluctuations in people's incomes.

The overall economy has become more stable over the past quarter century. America has had only two recessions in the past 20 years, in 1990-91 and 2001, both of which were mild by historical standards. But life has become more turbulent for firms and people's income now fluctuates much more from one year to the next than it did a generation ago. Some evidence suggests that the trends in short-term income volatility mirror the underlying wage shifts and may now be hitting the middle class most.

What of the future? It is possible that the benign pattern of the late 1990s will return. The disappointing performance of the Bush era may simply reflect a job market that is weaker than it appears. Although unemployment is low, at 4.6%, other signals, such as the proportion of people working, seem inconsistent with a booming economy.

More likely, the structural changes in America's job market that began in the 1990s are now being reinforced by big changes in the global economy. The integration of China's low-skilled millions and the increased offshoring of services to India and other countries has expanded the global supply of workers. This has reduced the relative price of labour and raised the returns to capital. That reinforces the income concentration at the top, since most stocks and shares are held by richer people. More important, globalisation may further fracture the traditional link between skills and wages.

As Frank Levy of MIT points out, offshoring and technology work in tandem, since both dampen the demand for jobs that can be reduced to a set of rules or scripts, whether those jobs are for book-keepers or call-centre workers. Alan Blinder of Princeton, by contrast, says that the demand for skills depends on whether they must be used in person: X-rays taken in Boston may be read by Indians in Bangalore, but offices cannot be cleaned at long distance. So who will be squeezed and who will not is hard to predict.

The number of American service jobs that have shifted offshore is small, some 1m at the most. And most of those demand few skills, such as operating telephones. Mr Levy points out that only 15 radiologists in India are now reading American X-rays. But nine out of ten Americans worry about offshoring. That fear may be enough to hold down the wages of college graduates in service industries.

All in all, America's income distribution is likely to continue the trends of the recent past. While those at the top will go on drawing huge salaries, those in the broad middle of the middle class will see their incomes churned. The political consequences will depend on the pace of change and the economy's general health. With luck, the offshoring of services will happen gradually, allowing time for workers to adapt their skills while strong growth will keep employment high. But if the economy slows, Americans' scepticism of globalisation is sure to rise. And even their famous tolerance of inequality may reach a limit.

“The Polarisation of the U.S. Labour Market”, by David H. Autor, Lawrence F. Katz and Melissa S. Kearney. NBER Working Paper No 11986. January 2006

“Trends in U.S. Wage Inequality: Re-assessing the Revisionists”, by David Autor, Lawrence F. Katz and Melissa Kearney. NBER 11627. September 2005

“The Evolution of Top Incomes: A Historical and International Perspective”, Thomas Piketty and Emmanuel Saez. NBER Working Paper 11955. January 2006

“Top Wealth Shares in the United States, 1916-2000: Evidence from Estate Tax Returns”, by Wojciech Kopczuk and Emmanuel Saez. National Tax Journal. June 2004

“Trends in the Transitory Variance of Earnings in the United States”, by Robert A. Moffitt and Peter Gottschalk. Economic Journal. March 2002

“Understanding Mobility in America”, by Tom Hertz, American University. Centre for American Progress. April 2006

“American Exceptionalism in a New Light: A Comparison of Intergenerational Earnings Mobility in the Nordic Countries, the United Kingdom and the United States”, by Markus Jantti, Knut Roed, Robin Naylor, Anders Bjorklund, Bernt Bratsberg, Oddbjorn Raaum and Tor Eriksson. IZA Discussion Paper No 1938. January 2006

“Do Poor Children Become Poor Adults? Lessons from a Cross Country Comparison of Generational Earnings Mobility”, by Miles Corak. IZA Discussion Paper No 1993. March 2006

“Where Did the Productivity Growth Go? Inflation Dynamics and the Distribution of Income”, by Ian Dew-Becker and Robert Gordon. NBER Working Paper 11842. December 2005

“How Computerised Work and Globalisation Shape Human Skill Demands”, by Frank Levy and Richard J. Murnane. May 2006

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I have something else to post but will do it in the next note.
 
Re: Inequality in America by tucsonmike on 29 June 2006 9:17pm
 
History Channel Magazine had a great article about George Washington and how he shaped the Presidency.

Today's U.S. News had a thing about entering Essays on the Following:

What Does it Mean to be an American?

It has to be 250 Words or fewer and you send it to editor@usatoday.com or fax it to (703) 854-2053.

You need to include your contact phone number, city and state for verification.

 
Re: Inequality in America by Ken Dunn on 30 June 2006 11:13pm
 
This topic looks a bit too complicated for the type of person who uses this website. Most countries have inequalities and another which comes to mind is South Africa. Most good politicians are working on minimising inequalities but it is not necessarily politicians fault the inequalities exist. It is a general trait in some people to dislike other races or religions or social classes.
 
Re: Inequality in America by jaime on 30 June 2006 11:39pm
 
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Re: Inequality in America by Clare on 1 July 2006 12:32am
 
I think the problems are universal, over here in the UK we have experienced many of the same issues except we are generally externally pessimistic rather than optimistic. A lot of jobs have already been moved abroad where it is cheaper to employ people or the raw materials are cheaper.

Clare
 
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